26 Apr Background Screening Process – Credit Checks
This post is the second of two on the background screening process, focussing on the credit check component, and draws on the TransUnion “Credit Score Fast Facts” sheet.
Every credit-active consumer has a credit report which is compiled by a credit bureau – South Africa has 14 registered credit bureaus, regulated by the National Credit Regulator in accordance with the National Credit Act (34 of 2005) and related law and regulations. Note that every person is entitled to inspect any credit bureau, or national credit register, file or information concerning that person, without charge, within any period of twelve months (i.e. obtain a credit report free of charge from any credit bureau each year). (National Credit Act, No. 34 of 2005, Section 72(1))
You are encourage to check your credit report, and your credit score , regularly to ensure each consistently paints you in the most accurate and positive light possible.
Each registered credit bureau uses its own scoring evaluative mechanism or model to evaluate ‘creditworthiness’, which is not the same as that used by lenders / credit providers (e.g. banks, retail stores), which may also include information such as your income and living expenses, your demographic information, current and past relationship with the lender, collateral etc. There is no single score or “scoring formula” that’s used all the time by all credit providers. The specific formula a lender chooses is beyond your control.
In the case of TransUnion, the Credit Score is essentially a “numerical summary” of all the credit information contained in your credit report –indicating strengths and weaknesses – and showing how you compare to other consumers when it comes to the way you manage your credit. Your score can improve or deteriorate, depending on your credit behaviour.
The Credit Score of any credit bureau is neither an endorsement nor condemnation of you or your credit behaviour. It will not determine whether you quality for credit. That will depend on the credit or service provider’s own criteria. However, it does give a general indication of areas that may need improvement in order to qualify for credit.
What IS within your control is your ability to handle your credit obligations responsibly each month and take simple steps to keep yourself in good credit standing.
In the case of TransUnion, the following key factors make up your Credit Score:
- Payment history: The way in which you manage your accounts – whether or not the full instalment is paid on time.
- Too much debt: How much you owe and how much available credit is being used.
- Negative information: Information such as bankruptcies and judgments on your credit record.
These are items of public record that indicate that you did not honour a particular debt obligation.
- Length of credit history: How long each account has been open.
- Number of new accounts and the number of account enquiries within a short timeframe: How many new accounts are applied for and opened in a short period.
Tips to boost your Credit Score include to:
- Pay the amount due on every one of your accounts in full and on time, every time.
- Limit your utilisation of credit – do not use all your available credit to the maximum allowed; manage your debts responsibly; and avoid applying for too much credit within a short timeframe.
- Maintain a healthy mix of credit (store accounts, credit cards, home loan, service contracts such as cell phone accounts and so on) in order to establish a strong credit
For more information, visit www.mytransunion.co.za